Potential conflicts between agricultural trade rules and climate change treaty commitments

Abstract

Climate change – among its many other challenges – also affects the conditions of competition along the whole food value chain. This article posits that many mitigation and adaptation policies imply a differentiation between otherwise identical products but with different carbon footprints. Where imports are affected, there is a potential for trade frictions. The main issue appears to be a climate-smart treatment of like products with different (non-product-related) production and processing methods (ppm). Now that national governments start implementing their commitments under the Paris Agreement on Climate Change, they have to closely look at the trade and investment impact of their Nationally Determined Contributions (NDCs). All NDCs presently available remain silent on concrete measures involving product differentiation according to footprint differences, be it by way of border adjustment measures, subsidies, prohibitions, or restrictions. The non-discrimination principle enshrined in the multilateral trading system can be a problem for such differentiations. No climate-smart agricultural measures have so far been notified to the World Trade Organization (WTO). But several renewable energy programmes have been found to violate WTO rules.

Potential problems could arise, for instance, from differentiating tariffs, import restrictions or taxes according to carbon footprint. Conditions of competition might be affected even by labels signalling products with a bigger footprint, or a climate-friendly impact, or through subsidies and incentives compensating domestic producers subject to emissions reductions, prohibitions, and input restrictions.

A second major problem lies in the way the Paris Agreement and the WTO address the Development Dimension: in the Paris Agreement, the Development Dimension is addressed by the notion of Common but Differentiated Responsibility (CBDR), leaving Parties free in terms of how they take development into account in their NDCs. On the other side, the Special and Differentiated Treatment (SDT) foreseen in all WTO agreements for developing country products and services appears incapable of dealing with the global impact of all emissions, regardless of their origin, or with the negative impact on developing country exports to climate smart markets in developed countries.

In conclusion, we suggest that a review of the climate-relevant trade and investment rules is necessary at the international level, involving climate, and agriculture and trade regulators, supported by scientific, economic and legal expertise. The purpose of this review is to avoid litigation jeopardising the implementation of the Paris Agreement. At the same time, such a review must be comprehensive, because the objective is to ensure maximum policy space for climate mitigation and adaptation without negatively affecting other countries, or unduly restricting trade and investment, especially in poor developing countries. Last but not least, this intergovernmental and inter-institutional review is urgent, because the results should provide as quickly as possible the legal security necessary for investors and operators, regulators, NDC developments and reviews, and international standard-setting processes.

Keywords: Climate change, Agriculture, WTO, UNFCCC, Nationally Determined Contributions

JEL Classification: F18, K33, O13, Q17, Q18, Q37, Q54